How Inclusive Utility Investments bring the energy transition to rural residents

As a society, we find ourselves in a situation sometimes described as a polycrisis, where social, ecological, and economic issues create challenging and mutually reinforcing synergies, making it difficult to address any problem in isolation.

For working people, the imminent need for a clean energy transition might seem like it has to take a backseat because of financial concerns at the household level. Yet, with a relatively simple financing mechanism—one that can be put in place by power utilities anywhere—the opposite can be the case. It is possible to address both affordability and climate crises at once. Programs known as inclusive utility investments (IUIs) make it feasible to accelerate the rate of the energy transition that’s already underway, while ensuring that the most cost-burdened households can benefit from that transition.

In fact, this financing mechanism is already in place in many communities, enabling cost-burdened residents to cut down on their energy bills while also facilitating a transition to healthier energy sources, and less resource use.

Energy Unaffordability

Depending on where you live and your paycheck, you may or may not regard energy bills as a regular financial stressor. For rural households in the United States, the energy burden—or the percentage of household income that goes toward energy bills—is significantly higher as a proportion of income than it is for those who live in metropolitan areas. And renters, elderly residents, or people of color, the costs associated with energy are even higher.

A 2018 report by the nonprofit research organization, The American Council for and Energy-Efficient Economy (ACEEE), found that “the median rural household energy burden is 42% greater than the median metropolitan household energy burden.”

The report also found that more vulnerable populations face significantly higher energy burdens. For example, renters in rural areas face a median energy burden 29% higher than homeowners, rural elderly households face an energy burden 44% higher than non-elderly households, and non-white rural residents have a median energy burden that is 19% higher than their white counterparts. Beyond just rural communities, a 2024 report from ACEEE found that a quarter of all low-income households in the United States spend an average of 15% of their income on energy.

Many of the households that could benefit the most from weatherization or energy upgrades like heat pumps and rooftop solar are also those who might not be able to afford it, due to lack of access to credit, loans, or savings that would pay for the upgrades.

Inclusive Utility Investments

One of the ways to benefit residents while transitioning to a cleaner and more efficient energy system comes in the form of a financing mechanism known as inclusive utility investments. These programs are also referred to as on-bill financing programs, tariffed on-bill investment programs, or pay-as-you-save (PAYS) programs.

Inclusive utility investment programs begin with a contractor assessing the energy savings potential of a building or unit on behalf of a utility. Then, based on the assessment, the utility offers the household some options that could increase the home’s energy efficiency. These options might include installing better insulation, weatherizing a basement, installing an induction stove, switching the heating and cooling system to more efficient heat pumps, or installing on-site solar.

Once the household chooses the improvements it wants, the upgrades are made, and the household pays the utility a surcharge over the years (also called an “on-bill tariff”) to cover improvement costs over time.

When done well, although the household will be paying a surcharge, this can lead to a lower energy bill because of reduced energy costs. In cases where weatherization makes a significant impact, or the customer gets a heat pump and moves away from baseboard heating, these upgrades from IUI programs can also lower strain on the grid.

Since the utility finances the upgrade and then earns it back via a surcharge, the household does not need to take on any type of bank debt. In the absence of an IUI program, the need to take on debt can be an insurmountable hurdle for many households.

Taken together, IUIs can result in lower overall bills for customers, more energy-efficient homes, and significantly lower energy usage. When replicated neighborhood by neighborhood, city by city, IUI programs can make a big difference in both household finances, as well as the broader energy ecosystem.

IUIs In Action

IUI programs are already in operation around the United States, especially in rural areas and among rural electric cooperatives, serving millions of customers in at least ten US states. Some examples include the HELP PAYS program out of the Ouachita Electric Cooperative in Arkansas, Vividly Brighter out of the Rappahannock Electric Cooperative in Virginia, and Upgrade to $ave out of the Roanoke Electric Cooperative in North Carolina.

A 2024 report by the Lawrence Berkeley National Laboratory, sponsored by and prepared for the Department of Energy, found that these programs significantly reduced energy consumption, effectively reached a wide range of households, and resulted in savings for about half the households in a specific program.

Looking at one program from Midwest Energy, researchers found an average reduction of 15% in household electricity use, and a reduction of 26% in gas use. The researchers also found that, in part because of how the surcharge is calculated, “among Midwest Energy program participants, about half appear to reduce their energy costs enough to offset the tariffed charge, saving money in a normal weather year, while about half do not appear to generate enough energy cost savings to offset the tariffed charge.” Yet the report also concludes that “ the average project comes very close to breaking even” and noted that a change in how the surcharge was calculated would mean that even more customers would come out ahead, financially.

Taken together, there is a need for energy upgrades and programs that are inclusive to all residents—urban and rural, renters and homeowners, of all ages and ethnic backgrounds. Inclusive utility investments are already in place around the United States, reaching a wide range of households. By expanding the prevalence of IUI programs, and making sure the specifics of these programs are tailored to the benefit of working people, it is possible to effectively tackle both the climate crisis and affordability crisis at once.

More rural energy solutions like IUI’s are available form Shareable’s partner, Rural Power Coalition.

Resources

Useful report:

https://emp.lbl.gov/news/berkeley-lab-reviews-participant-outcomes-pay-you-saver-paysr-programs